Production Analysis

Production: Is the act of converting input into output. In the production process, a firm
combines various inputs in different quantities and proportions to produce different
levels of output.

Input- Anything the firm buys/hires for use in its production process.

Output- Commodity or service that comes out of production process.

Time Element in Production:

1. Market Period- It is defined as very short period, where the factors of production
and costs remain fixed. This is due to the fact that the producer does not have
sufficient time to make the fresh adjustment of the factors of production. In such
period, supply remains fixed and the demand plays a very important role in the
fixation of price.

2. Short-Run- It is defined as a period of time over which the supply and use of
certain of production cannot be varied. The inputs which cannot be varied are called
fixed inputs. In short period, some inputs are fixed and some are variable.

3. Long-run- Is defined as a period of time long enough to permit variations in inputs

employed by the firm. There is no distinction between fixed and variable factors in
the long-run, as all the factors are treated as variable in nature. Long period is
associated with the change in the scale of production, assuming the the basic
technology of production to be constant.

Production Function-

In algebraic terms, the production function can be expressed as Q= f( a,b,c,d,......n,T)

Q represents the physical quantity of output per unit time.

a,b,c,d......n represents the various inputs used in the given state of technology in the
production process per period of time.

Often economists present a simple production function, assuming a two-factor model

as:

QX= F (K,L)
Production function broadly divided into :

a. Short-run production function with single input variable as Q = f( K,𝐿)

B. Long-run production function- In the long run, the firm operates with the changing
scale of output and its size as a whole is varied. Production function with two inputs
variable.

Q = f ( K,L)

Concept of total, average and marginal product:

1. Total Product/ Total Physical Product ( TP or TPP)- Total volume of goods and
services produced during specified period of time.

TP =∑MP or ∑MPP

2. Average Product or Average Physical Product ( AP or APP)- Per unit production of

the variable factor.

𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡
AP = = TP /L
𝑁𝑜.𝑜𝑓 𝑈𝑛𝑖𝑡𝑠 𝑜𝑓 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟

3. Marginal Product or Marginal Physical Product (MP or MPP) - The addition to

total product by the employment of one additional unit of variable factor.
ΔTP
MP = TPn-TPn-1, or
ΔL

Example- Units of L TP AP MP

1 50 50 50

2 90 45 40

3 120 40 30

4 140 35 20

5 150 30 10

6 150 25 0

7 140 20 -10

8 120 15 -20
Possible Shape of the Product Curves: